In response to a motion filed by the Commodity Futures Trading Commission, a US federal judge has granted a temporary reprieve to Kalshi, a prediction market provider, by blocking Arizona's attempt to bring criminal charges against the company. District Judge Michael Liburdi of the District of Arizona issued the ruling on Friday, stating that Arizona cannot proceed with the scheduled arraignment of Kalshi on Monday, April 13.
The state had previously announced its intention to file 20 criminal charges against Kalshi for allegedly offering betting products that violate Arizona law. The court's decision was based on the CFTC's claim that Arizona's gambling laws are preempted by the Commodity Exchange Act. The judge also noted that allowing Arizona to proceed with its state action could potentially violate the Supremacy Clause.
As a result, the court has issued a temporary restraining order, effective for two weeks, which may be extended if a pending motion for a preliminary injunction is granted. The ruling states that Arizona is temporarily restrained from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on CFTC-regulated markets. CFTC Chair Michael Selig welcomed the judge's decision, stating that Arizona's attempt to use state criminal law against companies that comply with federal law sets a dangerous precedent.
The CFTC has argued that prediction markets, also known as event contracts, are swaps subject to federal supervision, and that its role preempts state law. The outcome of this case may have significant implications for the regulation of prediction markets, as federal courts have yielded mixed results in similar cases. While some state courts have sided with states, federal courts have had different outcomes, with the Third Circuit Court of Appeals recently ruling that prediction markets are subject to CFTC rule.